Russians told all is well as economy sinks

Oil prices have plunged from a high earlier this year of $147 a barrel to the $70s this week, dangerously close to the minimum needed to sustain Russia's national budget. Russian stock markets have lost more than 60 percent of their value since May. The rough times have forced the recent sales of five banks, at least three of them for symbolic prices of less than $200.

The Russian Central Bank in Moscow. Russia's government has come under critcism for not being more open with Russians about the extent of the financial crisis.
Tom Lasseter / MCT

MOSCOW — Oil prices have plunged from a high earlier this year of $147 a barrel to the $70s this week, dangerously close to the minimum needed to sustain Russia's national budget. Russian stock markets have lost more than 60 percent of their value since May. The rough times have forced the recent sales of five banks, at least three of them for symbolic prices of less than $200.

For TV news viewers in Moscow, though, there's been little indication that things are going awry in the motherland.

During the past two weeks, newscasts showed Prime Minister Vladimir Putin petting a baby tiger he got for his birthday and watching his black Labrador prance around with a new global positioning device on its collar. And there was footage of Putin saying that because the global financial crisis began in the United States, its position as a leader of the free world "has been damaged, I believe, forever."

As for news about the plunging Russian economy on the main TV stations, all controlled or heavily influenced by the Kremlin? Almost nothing, during 20 newscasts watched recently, except for news when the markets bounced upward.

The disconnect between problems with the financial system here and the message the Kremlin is pushing makes clear a key facet of Russian leadership these days: a Soviet-style approach of a strong central power that criticizes the West while telling its citizenry little of importance.

It's made reading the financial tea leaves difficult for experts and almost impossible for ordinary Russians.

"There's only a sentence, if that, during . . . news programs," said Nikolai Berzon, a senior professor at the Russian State University's Higher School of Economics. "The Russian population is financially illiterate."

An editorial in the newspaper Vedomosti, a business journal, on Monday noted a "central bifurcation" between what top government officials are saying to the business community about "an unavoidable decrease in the rate of economic growth" and the reassuring words of Putin and President Dmitry Medvedev, meant for the masses on TV.

"Financial ignorance of Russia's residents is playing into the hands of the government: People have little knowledge of the crisis, its possible impacts, their rights and risks," the editorial said.

Even among Russian economists and political figures, there's disagreement about what the government is up to as it implements a planned bailout package of some $200 billion.

Russian officials have said repeatedly that they're looking to stabilize the stock market, protect the ruble and rescue banks in financial distress.

However, Alexander Murychev, the vice president of the influential Russian Union of Industrialists and Entrepreneurs, argues that the government has paid more attention to larger banks while letting many smaller ones languish. Four of the banks that were sold recently to government-affiliated banks or companies were among the 50 largest in the country, though the central bank handed out more than $14.5 billion in loans to more than 80 banks Monday, presumably including small ones.

One possible reason Murychev offered for letting smaller banks close: "If there are fewer banks, it's easier to control them."

Is he saying that's the government's aim?

"It's better to ask them. I don't know the answer," Murychev said. "But judging from what's happening, it seems like that's what they want."

Andrei A. Piontkovsky, a Russian analyst who's also a visiting fellow at the conservative Hudson Institute in Washington, offered a more scathing critique, charging that the Kremlin is bailing out those who are close to the ruling elite. "It's a redistribution of money and wealth to Putin's cronies," Piontkovsky said.

Mikhail Kasyanov, the Russian prime minister from 2000 to 2004 and now an opposition figure, made similar allegations. He charged that the approximately $6.7 billion the government is planning to invest in the stock market isn't to shore up the economy, but to rescue companies that the government or its allies own.

In the salons of the power elite, there's considerable worry about where the crisis is headed.

At the Grand Havana Room, a private club in central Moscow for the wealthy and well-connected, "everybody is shell-shocked," said Bob Van Ronkel, the director of business development.

The oil boom of the past several years had convinced many Russian business leaders that their country wouldn't face a downturn, even if Western economies began to slide.

"Everybody told me it couldn't happen because of the demand in Russia, because of the oil prices, because of the money coming in," said Ronkel, whose club reportedly has at least six members who are on the Forbes list of wealthiest Russians. "What everybody was saying was wrong."

Ronkel said that he'd heard recently about a steady march of rich men getting margin calls — demands for debt repayment, usually after stocks used as collateral fell in value.

"They've gotten billion-dollar margin calls . . . none of them I've heard of have had the cash" to pay off the loans, he said. The subsequent dumping of stocks to raise money has battered the markets even further.

Last Friday, a group of top economists met for a roundtable discussion in the headquarters of MICEX, one of two main Russian stock exchanges. Cradling their teacups and looking over the assortment of fine chocolates on hand, they chatted about the fiscal turmoil.

Vladimir Drebentsov, a chief economist for BP in Russia, noted dryly that "The stock market has melted down."

While most Russians aren't invested in the markets, there are direct implications for the country, said Sergei Aleksashenko, a former deputy chair of Russia's central bank, who was there Friday evening.

"The bulk of banks have invested in the stock market and they have had losses," said Aleksashenko, who's also the former head of the Russian division of Merrill Lynch.

In a phone conversation this week, Aleksashenko said that some banks recently had begun converting more of their rubles to dollars.

"Maybe at a time of crisis, they were looking for a stronger currency," he said. "Or maybe they didn't trust the Russian government."